Unequal Chances: Family Background and Economic Success

INTRODUCTION

SAMUEL BOWLES, HERBERT GINTIS, AND MELISSA OSBORNE GROVES

INTERGENERATIONAL INEQUALITY MATTERS

Citizens of modern democratic societies hold strongly meritocratic values. Equal opportunity for educational and occupational advancement can and should ensure that each child have a fair chance of economic success. At the same time, parents have the right and the duty to prepare their children as best they can for a secure economic future. These two values may conflict, but a moderate positive correlation between the economic success of parents and children is arguably compatible with both, since this may be interpreted as a sign that most parents are preparing their children well, and that only a small minority are exceptionally advantaged or disadvantaged.

As amply documented in this volume, however, there are quite strong tendencies for children of those at the bottom of the income distribution to find their children at the bottom, with a parallel tendency for those at the top of the income distribution to find their children also at the top. (see figure I.1).

Many will read the data provided in this and succeeding chapters and conclude, with us, that children from the least well-off families do not have a fair chance at attaining the level of economic security most other families manage to attain. This book not only analyzes the extent of economic mobility. It equally seeks to uncover the factors accounting for the success of some families (and the failure of others’) attempts to ensure their children an auspicious economic future. Much of what we have learned through this research makes us optimistic concerning the power of social policy to enhance equality of opportunity. For instance, we find that little intergenerational inequality is due to parents passing superior IQ on to their children, and much is due to parents passing their material wealth to their children, at least for those at the top of the income distribution. On the other hand, we find that children may well inherit genetically based behavioral characteristics that strongly affect their labor market success, though the extent of this aspect of the intergenerational transmission process cannot be estimated with much precision, and we are just beginning to find out what those characteristics are. While the evidence for a genetic aspect of the intergenerational transmission process is suggestive, a major role for the environmental influences of family, neighborhood, and schooling is beyond a doubt. However, conventional measures of schooling attainment do not capture key aspects of this process.

Figure I.1 Probability of offspring attaining given income decile, by parents’ income deciles, United States. Based on total family income for black and white participants in the Panel Study of Income Dynamics who were born between 1942 and 1972, and their parents. The income of the children was measured when they were aged 26 or older, and was averaged over all such years for which it was observed. The number of years of income data ranged from 1 to 29 with an average of 11.5; the median year of observation was 1991. Parents’ income was averaged over all observed years in which the child lived with the parents. The number of years of income data ranged from 1 to 27 with an average of 11.9; the median year of observation was 1974. The simple age-adjusted correlation of parents’ and children’s incomes in the data set represented in the figure is 0.42.

Source: Hertz, this volume.

BETTER DATA, NEW CONCLUSIONS

For many years, the consensus among economists was that in the United States, one’s income is only very weakly dependent upon the economic success of one’s parents.¹

Early research on the statistical relationship between parents’ and their children’s economic status after becoming adults, starting with Blau and Duncan (1967), found only a weak connection. For example, the simple correlations between parents’ and sons’ income or earnings (or their logarithms) in the United States reported by Becker and Tomes (1986) averaged 0.15. Becker (1988) expressed a widely held consensus when, in his presidential address to the American Economics Association, he concluded, [L]ow earnings as well as high earnings are not strongly transmitted from fathers to sons. (10)

More recent research, some of which is presented in this volume, demonstrates that the estimates of high levels of intergenerational mobility were artifacts of two types of measurement error: mistakes in reporting income, particularly when individuals were asked to recall the income of their parents, and transitory components in current income uncorrelated with underlying permanent income (Bowles 1972; Bowles and Nelson 1974; Atkinson et al. 1983; Solon 1992; Zimmerman 1992). The high noise-to-signal ratio in both generations’ incomes depressed the intergenerational correlation. As Bhashkar Mazumder shows in chapter 2, when corrected for these two types of measurement error, the intergenerational correlations for economic status appear to be substantial, many of them three times the average of the U. S. studies surveyed by Becker and Tomes (1986).

The higher consensus estimates of the intergenerational transmission of economic success has stimulated empirical research. The relevant facts on which most researchers now agree include the following: brothers’ incomes are much more similar than those of randomly chosen males of the same race and similar age differences; the incomes of identical twins are much more similar than fraternal twins or non-twin brothers; the children of well-off parents obtain more and higher-quality schooling; and wealth inheritance makes an important contribution to the wealth owned by the offspring of the very rich. On the basis of these and other empirical regularities, it seems safe to conclude that the intergenerational transmission of economic status is accounted for by a heterogeneous collection of mechanisms, including the genetic and cultural transmission of cognitive skills and noncognitive personality traits in demand by employers (see Melissa Osborne Groves’s contribution, chapter 7), the inheritance of wealth and income-enhancing group memberships such as race (see Thomas Hertz’s contribution, chapter 5), and the superior education and health status enjoyed by the children of higher-status families.

The transmission of economic success across generations, however, remains something of a black box. Basing our arguments on the consolidation of several data sets, we report in this introduction that the combined inheritance processes operating through superior cognitive performance and educational attainments of those with well-off parents, while important, explain at most half of the intergenerational transmission of income. Moreover, while genetic transmission of earnings-enhancing traits appears to play a role, the genetic transmission of IQ appears to be surprisingly unimportant.

It might be thought that the relative unimportance of IQ in intergenerational inequality is an artifact of poor measurement of the intervening variables relative to the measurement of the income or earnings of parents and offspring. But this does not seem to be the case. Years of schooling and other measures of school attainment, like cognitive performance, are measured with relatively little error. Better measurements will of course help; but we are not likely to improve much on our measures of IQ, and recent improvements in the measurement of school quality have not offered much additional illumination. Our weakness in accounting for intergenerational economic status transmission is not due to measuring the right variables poorly, but to missing some of the important variables entirely. What might these be?

Most economic models treat one’s income as the sum of the returns to the factors of production one brings to the market, like cognitive functioning and education. But any individual trait that affects income and for which parent-offspring similarity is strong will contribute to the intergenerational transmission of economic success. Included are race, geographical location, height, beauty or other aspects of physical appearance, health status, and some aspects of personality. Thus, by contrast to the standard approach, we give considerable attention to income-generating characteristics that are not generally considered to be factors of production.

In studies of the intergenerational transmission of economic status, our estimates suggest that cognitive skills and education have been overstudied, while wealth, race, and noncognitive behavioral traits have been understudied. As a partial corrective, in chapter 7, Melissa Osborne Groves includes explicit personality variables in modeling intergenerational status transmission. Using the National Longitudinal Surveys, she finds that the inclusion of personality accounts for a larger component of the intergenerational transmission process than measured IQ. Adding a single personality variable—fatalism—reduces the unexplained persistence of earnings by more than four percentage points—more than twice that of cognitive performance. In addition, the transmission of personality contributes to the transmission of earnings between father and son, comparable to estimates of the portion attributed to the inheritance of IQ.

In chapter 1, Greg Duncan, Ariel Kalil, Susan Mayer, Robin Tepper, and Monique Payne describe the extent of resemblance between parents and children and attempt to account for resemblances with traditional measures of family background such as socioeconomic status, educational level, and even general parenting skills. On the basis of two data sets containing seventeen detailed measures of parental behavioral characteristics measured in adolescence and the same characteristics of their children, they find that parents pass on specific rather than general competencies to their children. Family background and parenting explain only a small part of intergenerational correlations. It follows that disaggregation of individual behavioral characteristics may significantly improve our understanding of intergenerational status transmission.

MEASURING THE INTERGENERATIONAL TRANSMISSION OF ECONOMIC STATUS

Economic status can be measured in discrete categories—by membership in hierarchically ordered classes, for example—or continuously, by earnings, income, or wealth. The discrete approach can allow a rich but difficult-to-summarize representation of the process of intergenerational persistence of status using transition probabilities among the relevant social ranks (Erikson and Goldthorpe 1992). By contrast, continuous measures allow a simple metric of persistence, based on the correlation between the economic status of the two generations. Moreover, these correlations may be decomposed into additive components reflecting the various causal mechanisms accounting for parent-child economic similarity. Both approaches are insightful, but for simplicity of presentation we rely primarily on the continuous measurement of status. For reasons of data availability, we use income or earnings as the measure of economic status, though income (the more inclusive measure) is preferable for most applications. We use subscript p to refer to parental measures, while y is an individual’s economic status, adjusted so that its mean, ȳ, is constant across generations, βy is a constant, and εy is a disturbance uncorrelated with yp. Thus

that is, the deviation of the offspring’s economic status from the mean is βy times the deviation of the parent from mean economic status, plus an error term. The coefficient βy is a measure of intergenerational income persistence. In the empirical work reviewed below, earnings, income, wealth, and other measures of economic success are measured by their natural logarithm unless otherwise noted. Thus, βy is the percentage change in offspring’s economic success associated with a 1 percent change in parents’ economic success. The influence of mean economic status on the economic status of the offspring, 1-βy, is called regression to the mean, since it shows that one may expect to be closer to the mean than one’s parents by the fraction 1-βy (Goldberger 1989).

The relationship between the intergenerational income elasticity, βy, and the intergenerational correlation Py is given by

where σy is the standard deviation of y. If y is the natural logarithm of wealth, income, or earnings, its standard deviation is a common unit-free measure of inequality. Thus, if inequality is unchanging across generations, so σyp = σy, then ρy = βy. However, the intergenerational income elasticity exceeds ρy when income inequality is rising, but is less than ρy when income inequality is declining. In effect, the intergenerational correlation coefficient ρ is affected by changes in the distribution of income while the intergenerational income elasticity is not. Also, ρ² measures the fraction of the variance in this generation’s measure of economic success that is linearly associated with the same measure in the previous generation.

Estimates of the intergenerational income elasticity are presented in Mulligan (1997), Solon (1999), and Harding et al. (this volume). The mean estimates reported in Mulligan are as follows: for consumption 0.68, for wealth 0.50, for income 0.43, for earnings (or wages) 0.34, and for years of schooling 0.29. Evidence concerning trends in the degree of income persistence across generations is mixed. Most studies indicate that persistence rises with age, is greater for sons than daughters, and is greater when multiple years of income or earnings are averaged. The importance of averaging multiple years to capture permanent aspects of economic status is dramatized in Mazumder’s contribution to this volume (chapter 2). Mazumder used a rich U.S. Social Security Administration data set to estimate an intergenerational income elasticity of 0.27 averaging a son’s earnings over four years and a father’s earnings averaged over two years. But the estimate increases to 0.47 when seven years of the fathers earnings are averaged, and to 0.65 when sixteen years are averaged.

Do intergenerational elasticities of this magnitude mean that rags to riches is no more than a fantasy for most poor children? The intergenerational correlation is an average measure, and may be unilluminating about the probabilities of economic success conditional on being the child of poor, rich, or middling parents. Calculating these conditional probabilities and inspecting the entire transition matrix gives a more complete picture. The results of a study by Tom Hertz, reported in chapter 5, appear in figure I.1, with the adult children arranged by income decile (from poor to rich, moving from left to right) and with parents arranged by income decile along the other axis. The height of the surface indicates the likelihood of making the transition from the indicated parents’ decile to the children’s decile.

Though the underlying intergenerational correlation of incomes in the data set that Hertz used is a modest 0.42, the differences in the likely life trajectories of the children of the poor and the rich are substantial. The twin peaks represent those stuck in poverty and affluence (though we do not expect the term affluence trap to catch on). A child born to the top decile has a 29.6 percent chance of attaining the top decile (point D) and a 43.3 percent chance of attaining the top quintile. A indicates that the child of the poorest decile has a 1.3 percent chance of attaining the top decile, and a 4.3 percent chance of attaining the top quintile. C indicates that children of the poorest decile have a 31.5 percent chance of occupying the lowest decile, and a 51.3 percent chance of occupying the lowest quintile, while B shows that the child of the richest decile has a 1.5 percent chance of ending in the poorest decile, and a 3.5 percent chance of occupying the lowest quintile.

Mobility patterns differ dramatically by race, as reported by Hertz in chapter 5. In particular, the rate of persistence in the bottom decile, a measure of the severity of the intergenerational poverty trap, is much higher for blacks than for whites. Other studies (Corak and Heisz 1999; Cooper et al. 1994) also suggest that distinct transmission mechanisms may be at work at various points of the income distribution. For example, wealth bequests may play a major role at the top of the income distribution, while at the bottom, vulnerability to violence or other adverse health episodes may be more important.

SOURCES OF PERSISTENCE: CULTURAL, GENETIC, AND BEQUEST

Economic status does persist substantially across generations. We seek to uncover the channels through which parental incomes influence offspring incomes. We do this by decomposing the intergenerational correlation (or the intergenerational income elasticity) into additive components reflecting the contribution of various causal mechanisms. This will allow us to conclude, for example, that a certain fraction of the intergenerational correlation is accounted for by the genetic inheritance of IQ, or by the fact that the children of wealthy parents are also wealthy.

It is a remarkable fact about correlation coefficients that this can be done. Moreover, the technique we use does not require that we introduce variables in any particular order. Suppose that parents’ income (measured by its logarithm, yp) and offspring education (s) affect offspring income (also measured by its logarithm, y). Like any correlation coefficient, this intergenerational correlation rypy can be expressed as the sum of the normalized regression coefficients of measures of parental income βypy and offspring education βys in a multiple regression predicting y, each multiplied by the correlation between yp and the regressor (which, of course, for parental income itself is 1). The normalized regression coefficient is the change in the dependent variable, in standard deviation units, associated with a one standard deviation change in the independent variable. The direct effect is the normalized regression coefficient of parental income from this regression. The education component of this decomposition of the intergenerational correlation is called an indirect effect. Figure I.2 illustrates this breakdown,² which gives

As long as the multiple regression coefficients are unbiased, the decomposition is valid whatever the relationship among the variables. Specifically, it does not require that the regressors be uncorrelated. This decomposition allows us to be more precise about our black box claim. When we reported that the standard schooling, cognitive level, and other variables account for less than half of the observed parent offspring similarity of income, for instance, we mean that the direct parental effect is least half of the intergenerational correlation in a number of studies allowing this comparison (Bowles 1972; Bowles and Nelson 1974; Atkinson et al. 1983; Mulligan 1997).

Our strategy is to estimate the size of these direct and indirect effects. Note that the decomposition uses correlations between parental incomes and other variables—schooling, in the example—thought to be causally related to the income-generating process. These correlations with parental income need not, of course, reflect causal relationships. But the above decomposition can be repeated for the correlations between parental income and the causes of offspring income, in some cases permitting causal interpretations. For example, a study of the role of wealth in the transmission process could ask why parental income and offspring wealth are correlated. Is it bequests and inter vivos transfers or the cultural transmission of savings behaviors that account for this correlation? Or do we simply not know why parent and offspring wealth is correlated, and as a result should avoid giving the data a causal interpretation? Likewise, parent-offspring similarity in human capital may be due to genetic or cultural inheritance of whatever it takes to persist in schooling and to acquire skills and behaviors that are rewarded in the labor market. Unlike models of parental and child behavior that account for persistence, pioneered by Becker and elaborated by Graw and Mulligan (2002), our approach is more diagnostic, not giving an adequate causal account of the transmission process, but indicating where to look to find the causes. The next sections will explore such decompositions.

Figure I.2 Representing a correlation as the sum of direct and indirect effects.

THE ROLE OF GENETIC INHERITANCE OF COGNITIVE SKILL

One of the transmission channels deserves special attention not only because of its prima facie plausibility, but also because of the extraordinary attention given to it in popular discussions of the subject. This is the genetic inheritance of cognitive skill. The similarity of parents’ and offspring’s scores on cognitive tests is well documented. Correlations of IQ between parents and offspring range from 0.42 to 0.72, where the higher figure refers to measures of average parental vs. average offspring IQ (Bouchard and McGue 1981; Plomin et al. 2000). The contribution of cognitive functioning to earnings both directly and via schooling attainment has also been established in a variety of studies that estimate determinants of earnings using IQ (and related) test scores. The direct effect of IQ on earnings is estimated from multiple regression studies that typically use the logarithm of earnings as a dependent variable, and that estimate the regression coefficients of a variety of explanatory variables, including performance on a cognitive test, years (and perhaps other measures) of schooling, a measure of parental economic and / or social status, work experience, race, and sex. The indirect effect of IQ operating through its contribution to higher levels of educational attainment is estimated using measures of childhood IQ (along with other variables) to predict the level of schooling obtained.

We have located sixty-five estimates of the normalized regression coefficient of a test score in an earnings equation in twenty-four different studies of U.S. data over a period of three decades. Our meta-analysis of these studies is presented in Bowles, Gintis, and Osborne (2001b). The mean of these estimates is 0.15, indicating that a standard deviation change in the cognitive score, holding constant the remaining variables (including schooling), changes the natural logarithm of earnings by about one-seventh of a standard deviation. By contrast, the mean value of the normalized regression coefficient of years of schooling in the same equation predicting the natural log of earnings in these studies is 0.22, suggesting a somewhat larger independent effect of schooling. We checked to see if these results were dependent on the weight of overrepresented authors, the type of cognitive test used, at what age the test was taken, and other differences among the studies, and we found no significant effects. An estimate of the causal impact of childhood IQ on years of schooling (also normalized) is 0.53 (Winship and Korenman 1999). A rough estimate of the direct and indirect effect of IQ on earnings, call it b, is then b = 0.15 + (0.53)(0.22) = 0.266.

Do these two facts—parent-child similarity in IQ and an important direct and indirect causal role for IQ in generating earnings—imply a major role for genetic inheritance of cognitive ability in the transmission of intergenerational economic status? One way to formulate this question is to ask how similar would parental and offspring IQ be if the sole source of the similarity were genetic transmission. Also, how similar would the incomes of parents and offspring be if there were no other transmission channel?

For this we need some insights into genetics (the details are in the appendix and in Bowles and Gintis [2002]), and a few terms—phenotype, genotype, heritability, and the genetic correlation. A person’s IQ—meaning, a test score—is a phenotypic trait, while the genes influencing IQ are the person’s genotypic IQ. Heritability is the relationship between the two. Suppose that, for a given environment, a standard deviation difference in genotype is associated with a fraction h of a standard deviation difference in IQ. Then h² is the heritability of IQ. Estimates of h² are based on the degree of similarity of IQ among twins, siblings, cousins, and others with differing degrees of genetic relatedness. The value cannot be higher than 1, and most recent estimates are substantially lower, possibly more like a half or less (Devlin et al. 1997; Feldman et al. 2000; Plomin 1999). The genetic correlation is the degree of statistical association between genotypes of parents and children, which is 0.5 if the parents’ genotypes are uncorrelated (random mating). But couples tend to be more similar in IQ than would occur by random mate choice (assortative mating), and this similarity is associated with an unknown correlation m of their genotypes. The effect is to raise the genetic correlation of parent and offspring to (1 + m)/2.

Using the above method of decomposition, the correlation γ between parental and offspring IQ that is attributable to genetic inheritance of IQ alone is the heritability of IQ times the genetic correlation. Thus we have γ = h²(1 + m)/2. The correlation between parent and offspring income attributable to genetic inheritance of IQ is simply this correlation, times the normalized effect of IQ on the income of parents, times the analogous effect for the offspring, or γb². Another way to see this is to note that the correlation between parental income and offspring IQ, which we would observe were the genetic inheritance of IQ the only channel at work, is γb, and this times the effect of offspring IQ on earnings, which is b, gives the same result.

Using the values previously estimated, we see that the contribution of genetic inheritance of IQ to the intergenerational transmission of income is (h²(1 + m)/2)(0.266)² = .035(1 + m)h². If the heritability of IQ were 0.5 and the degree of assortation, m, were 0.2 (both reasonable, if only ball park estimates), and if the genetic inheritance of IQ were the only mechanism accounting for intergenerational income transmission, then the intergenerational correlation would be 0.01, or roughly 2 percent the observed intergenerational correlation. Note the conclusion that the contribution of genetic inheritance of IQ is negligible is not the result of any assumptions concerning assortative mating or the heritability of IQ: the IQ genotype of parents could be perfectly correlated and the heritability of IQ 100 percent without appreciably changing the qualitative conclusions. The estimate results from the fact that IQ is just not an important enough determinant of economic success.

Might the small contribution of genetic inheritance of IQ to parent-offspring similarity of incomes be the result of measurement error in the cognitive measures? There are two issues here. First, what is the reliability of the test: whatever the test measures, does it measure well? Second, what is the validity of the test: does the test measure the right thing? The concern that the tests are a very noisy measure is misplaced. In fact, the tests are among the more reliable variables used in standard earnings equations (reliability is measured by the correlation between tests and retests, between odd and even numbered items on the tests, and by more sophisticated methods). For the commonly used Armed Forces Qualification Test (AFQT), for example—a test used to predict vocational success that is often used as a measure of cognitive skills—the correlation between two test scores taken on successive days by the same person is likely to be higher than the correlation between the same person’s reported years of schooling or income on two successive days.

The second concern, that the tests measure the wrong thing, is weightier and less easy to address with any certainty. Could it be that cognitive skills not measured on existing test instruments are both highly heritable and have a major impact on earnings, thereby possibly explaining a more substantial fraction of the transmission process? The search for general cognitive measures that are substantially uncorrelated with IQ and predictive of success in adult roles began with Edward Thorndike’s (1919) paper on social intelligence. Some alternative test instruments, such as Robert Sternberg and collaborators’ practical intelligence (Sternberg et al. 1995; Williams and Sternberg 1995) predict economic success in particular occupations. But despite the substantial fame and fortune that would have accrued to success in this area, the quest that Thorndike launched three generations ago has yielded no robust alternative to IQ, let alone one that is highly heritable. Thus, the possible existence of economically important but as yet unmeasured heritable general cognitive skills cannot be excluded, but should at this stage be treated as somewhat wishful speculation.

Indeed, we are inclined to think that available estimates overstate the importance of general cognitive skill as a determinant of earnings, since in many respects taking a test is like doing a job. Successful performance in either case results from a combination of ability and motivation, including the disposition to follow instructions, persistence, work ethic, and other traits likely to contribute independently to one’s earnings. This is the reason we eschew the common label of a test score as cognitive skill but rather use the more descriptive term cognitive performance. Eysenck (1994, 9), a leading student of cognitive testing, writes, Low problem solving in an IQ test is a measure of performance; personality may influence performance rather than abstract intellect, with measurable effects on the IQ. An IQ test lasts for up to 1 hour or more, and considerations of fatigue, vigilance, arousal, etc. may very well play a part. Thus some of the explanatory power of the cognitive measure in predicting earnings does not reflect cognitive skill but rather other individual attributes contributing to the successful performance of tasks.

GENETIC AND ENVIRONMENTAL INHERITANCE

Although the genetic inheritance of IQ explains little of the intergenerational transmission process, this does not rule out the possible importance of other genetically transmitted traits. Indeed, the remarkable income similarity of identical twins compared to fraternal twins suggests that genetic effects may be important. We will use the similarity of twins to estimate the genetic heritability of income as well as the environmental component of intergenerational transmission.

But two words of caution are in order. First, as we will demonstrate, our estimates are quite sensitive to variations in unobserved parameters. Second, it is sometimes mistakenly supposed that if the heritability of a trait is substantial, then the trait cannot be affected much by changing the environment. The fallacy of this view is dramatized by the case of stature. The heritability of height estimated from U.S.-twin samples is substantial (about 0.90, according to Plomin et al. 2000). Moreover there are significant height differences among the peoples of the world: Dinka men in the Sudan average 5 feet and 11 inches—a bit taller than Norwegian and U.S. military servicemen and a whopping 8 inches taller than the Hadza hunter-gatherers in Southern Africa (Floud et al. 1990). But the fact that Norwegian recruits in 1761 were shorter than today’s Hadza shows that even quite heritable traits are sensitive to environments. What can be concluded from a finding that a small fraction of the variance of a trait is due to environmental variance is that policies to alter the trait through changed environments will require nonstandard environments that differ from the environmental variance on which the estimates are based.

Consider the case of South Africa, where in 1993 (the year before Nelson Mandela became president) roughly two-thirds of the intergenerational transmission of earnings was attributable to the fact that fathers and sons are of the same race, and race is a strong predictor of earnings (Hertz, 2001). That is, adding race to an equation predicting sons’ earnings reduces the estimated effect of fathers’ earnings by over two thirds. Because the physical traits designated by race are highly heritable and interracial parenting uncommon, we find a substantial role of genetic inheritance in the intergenerational transmission of economic status. Yet, it is especially clear in the case of South Africa under apartheid that the economic importance of the genetic inheritance of physical traits was derived from environmental influences. What made the genetic inheritance of skin color and other racial markers central to the transmission process were matters of public policy, not human nature, including the very definition of races, racial patterns in marriage, and the discrimination suffered by nonwhites. Thus, the determination of the genetic component in a transmission process says little by itself about the extent to which public policy can level a playing field.

Our estimates of heritability use data on pairs of individuals with varying degrees of shared genes and environments. For example, identical and fraternal twins are exposed to similar environments during their upbringing but fraternal twins are less closely related genetically than identical twins. Under quite strong simplifying assumptions (explained in the appendix to Bowles and Gintis 2002), one can exploit the variation in genetic and environmental similarities among pairs of relatives to estimate heritability of a trait such as income, years of schooling, or other standard economic variables. Taubman (1976) was the first economist to use this method. The model underlying the following calculations assumes that genes and environment affect human capital, which produces earnings, as the equation below